USDCNY – Daily Chart
The price of the USDCNY has jumped to resistance at 7.177 and could now look to target the August highs around 7.275.
The price of gold fell and the US dollar surged after Donald Trump was elected back to the White House with a resounding win of 276 to 223. Gold fell more than 1.5% as uncertainty over the race was cleared.
The US dollar also surged more than 1% against the Chinese yuan as traders prepared themselves for a return to tariffs against China.
“While a stronger dollar and higher yields in a Trump win may be headwinds for gold, this will be balanced with potential safe-haven demand in the event of any trade tensions,” said Jun Rong Yeap, strategist with IG Asia.
However, there are fears that Trumps’ policies could increase the federal deficit and that could increase the risk of inflation.
If it’s a Republican sweep, including not only the Senate but the House of Representatives, “Trump’s ability to increase US government debt and push the deficit up is much greater,” said Marcus Garvey, at Macquarie Group.
Trump made tariffs and tax cuts a key part of his election strategy, with a majority of voters saying the economy was the biggest issue in the election. Another important part of his platform was to initiate deregulation in areas from banking to cryptocurrencies.
“Markets are basically thinking it’s pro-growth, even if it comes with higher inflation and higher interest rates,” said David Bianco, chief investment officer at DWS Group.
The potential implementation of tariffs, which Trump has said he will increase by 10% on imports, and 60% on goods from China, will be a key theme for investors in the coming months. A study by Deutsche Bank said Trump’s victory would add about half a percentage point to GDP if tariffs are not implemented. Tariffs could subtract around a quarter of a point from GDP, the study added.
“There are still going to be some question marks as to how aggressive Trump does go with tariffs,” said Garrett Melson, portfolio strategist at Natixis.
The US dollar has risen across the world against other major currencies and the falling yuan could have an impact on China’s monetary policy going forward.